Fact, Fiction, and Common Misconceptions about your Home’s Value
One of the sometimes confusing, and often dreaded, aspects of securing your mortgage is the appraisal process. It can be a scary thing for many people. The volatile nature of the housing market, with it’s constant ups and downs, often leaves homeowners wondering exactly how much their home may be worth at any given moment. What are the appraisers looking for anyway? Who has control over the appraiser of your property? How did your value change so much in just a few years? Fear not, here, we get down to the nitty-gritty of everything you ever wanted to know about appraisals.
Inflated appraisals were certainly a component in the crash nearly a decade ago (though how much of a factor is an endless topic of debate for financial analysts). Since then, heavy industry regulations have been put in place; attempting to control market values and helping to prevent another housing bubble from bursting. One of these protocols involves separating your lender from your appraiser. Lenders are in charge of assigning the appraiser, but are required to use a third-party company that they have no affiliation with.
Often, to ensure full compliance with federal law, lenders like Network Capital will go through an appraisal management company that chooses a licensed appraiser from its roster. One common misconception is that lenders are in charge of the disbursement of the money paid for appraisals. The money you are charged for appraisals goes directly to the aforementioned appraisal management company. It is then the appraisal company that calls the borrower to set the appointment independently from the lender.
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Once your appointment is scheduled, the appraiser will arrive on the planned day and time to assess your property, which usually takes around 20-45 minutes. Depending on what your lender’s requirements are, you will either have a “drive-by” or a “full” appraisal. More often than not (for conventional loans) the guidelines laid out by Fannie Mae and Freddie Mac require a full appraisal using a 1004 form. The 1004 contains a wealth of information including: home improvements, floor sketches, exterior dimensions, and square footage. In addition to all of the subject property information, it will also include front, rear, and street photos of comparable properties, or “comps,” with a full description of the neighborhood, location, and site overview.
So what, exactly, are appraisers are looking for anyway? It’s important to note even though appraisers are trained to be objective, first impressions will always make a huge impact. When your appraiser approaches your property, they are definitely keeping an eye out for your curb appeal. To get the best results, be sure your entire property is trimmed, cleaned, and organized. Get rid of any dead plants, weeds, and refuse.
Pay attention to the details. Is there peeling paint on the exterior or interior of your property? One of the easiest ways to update a shabby-looking abode is with a fresh coat of paint. It’s inexpensive and makes an instant difference. It also could be time to shampoo the carpets (or consider replacing them entirely), wash the walls, and toss out any clutter (it’ll make the home seem bigger). Be sure that everything is in proper working order. Check the light switches and faucets. Repair any holes or leaks around the house.
Something that many homeowners fail to understand is which improvements/upgrades they have made to their home actually increase the appraised value. For many it would make sense that, if you were to install $25,000 worth of beautiful marble flooring that it would increase the value of your home the same amount. Unfortunately, however, this is not often the case. Factors that appraisers do take into consideration include square footage, number of (coded) bedrooms, and kitchen/bathroom upgrades. Concentrate on these renovations in order to get the most bang for your remodeling buck.
One key thing to keep in mind is that if you are planning on doing any construction, you should wait until AFTER the appraisal. If they arrive in the midst of renovations, not only can it lower the current value of your home (using “as is” or “subject to” values), but with some lenders you may not be able to close until everything is complete.
We hope that this article has shed some light into the wide world of appraisals. We’d love to hear your comments below!
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Disclaimer: The Mortgage Radio Show is sponsored by Network Capital Funding Corporation, a direct lender, NMLS11712.